High stakes, two paths, but no easy answers at chains

All parties expect the cross-ownership rules that have prevented newspapers from owning broadcast TV stations in their markets to be lifted imminently. But the two camps of companies-the pure-play paper-and-online operations typified by Knight Ridder, McClatchy Co. and Lee Enterprises on one hand, and the media-conglomerate-seeking-synergy types exemplified by Tribune Co. on the other-are bidding to see which model makes more sense in a shifting media field.

While the prospect of print-TV combinations may dazzle on paper, with implications of multiple ad packages and deeper journalistic possibilities, observers and some who've dabbled in such situations concede the deals have bequeathed no enormous bottom-line bang just yet.

"It hasn't been proven to me there is a lot of synergy on the revenue side" in TV-newspaper combinations, says Lauren Rich Fine, an analyst with Merrill Lynch & Co. "It's not that I'm skeptical; it's that I truly don't know."

NET FALLS SHORT

In the wake of its deal for Times Mirror Co., Tribune Co. formed Tribune Media Net to sell its newspaper-TV combinations in Los Angeles, Chicago and a chunk of the New York market (see story on Page S-7). In March 2001, Business Week reported Tribune Co. CEO John Madigan's "expectations" Media Net revenue would hit $200 million by 2005. Well into 2001, the company was sticking to projections of first-year Media Net revenue of $40 million to $50 million. The recession reduced the total to about $34 million by yearend, says Dennis FitzSimons, Tribune president-chief operating officer. "We have expectations we could possibly double that this year," he adds.

At least one analyst comes out, albeit cautiously, as a fan of the Tribune model. "Over the very long term, the conglomerate should do better" at least in terms of stock performance, says Ed Atorino of Dresdner Kleinwort Wasserstein, owing to his expectations that TV and radio properties will "grow faster" than newspapers. As for on-the-ground results, however, he says, "It's yet to be proven, but there are some signs it works."

"Anytime you can put a larger share of audience together, whether that is by cross-media or by having multiple outlets in the same medium, you're better off," contends Tribune's Mr. FitzSimons.

Others are less convinced. "I really think the jury's still out on whether that works," says David Cole, editor and publisher of trade newsletter NewsInc. "I don't see any details in Tribune's reports that because they're able to cross-sell media in those three markets they're doing any better than if they didn't."

Interestingly, given Mr. Atorino's point on stock performance, Mr. Cole notes that pure-play McClatchy in the past year has turned in the best stock performance of any of the newspaper companies he follows. But Mr. Atorino says the market valued conglomerates like Tribune, Gannett Co. or Belo Corp. at higher multiples than pure-play Knight Ridder, though he admits uncertainty as to how much of a "merger or cross-ownership" premium is built in.

One smaller-market combination Messrs. Cole and Atorino cite as showing signs of success is Media General's coupling of The Tampa Tribune in Florida and local NBC affiliate WFLA-TV. That combination has resulted in an overall revenue boost of 2% for Media General's properties in that market, the company told analysts in a conference call this month. (Media General doesn't disclose revenue of individual properties, but one observer estimates the Tampa paper's yearly revenue topped $200 million.)

That may be why executives at pure-play companies-while sometimes admitting that divestitures of broadcast assets long ago may not be a move they'd make today-are more inclined to shrug than salivate at the notion of TV station availability.

Another part of this is practicality. Broadcast TV valuations remain high, and consolidation of that industry means the station next door is rarely a stand-alone but instead part of a multistation group.

But there's more to it than that. "If someone is able to demonstrate compelling synergies, we would be interested" in acquiring same-market TV stations, says Gary Pruitt, chairman-CEO of pure-player McClatchy, which owns the Star Tribune in Minneapolis and 10 other dailies. "But to date the empirical evidence does not support that."

There are exceptions. "When we're allowed to buy radio and TV in our local markets, we will," says W. Dean Singleton, CEO of MediaNews Group, which owns The Denver Post and 45 other dailies. Mr. Singleton has in the past spoken of "teeing up" broadcast acquisitions pending cross-ownership rules lifting. And he predicts "those that wait and see will ultimately dive into it" as well.

Tony Ridder, chairman-CEO of Knight Ridder, the biggest newspaper pure-play, was unavailable for comment, but a company spokesman points out Mr. Ridder has said he didn't expect changes in station ownership following the lifting of regulations to have any significant impact on his company.

way of future

Mr. Ashe perfectly summarizes the still-uncertain promise of the conglomerate approach and the newspaper industry's sometimes-ambivalent relationship with it: "I think this is probably the way of the future."

Mr. Pruitt, who concedes in hindsight that McClatchy's '80s sell-off of broadcast properties "may have been a mistake," says he's sometimes heard from deal-hungry investment bankers and companies that McClatchy's pure-play, midsize status made it "untenable" in the media world today. Pointing to his company's growth and stock performance, though, he counters that "if this is untenable, bring it on. We'll take it."